Why Chrysler's Ram Is Gaining on Ford's F-150

Ford's F-150 has been facing an uphill fight to keep pace with its Detroit rivals' gains. Source: Ford Motor Co.

May was a good month for U.S. auto sales, which rose -- a sign that the winter doldrums we saw earlier in the year have passed.

It was a good month for Detroit, too. General Motors (NYSE: GM) , Ford (NYSE: F) , and Fiat Chrysler (NASDAQOTH: FIATY) all posted sales gains that beat analysts' estimates.

Pickup trucks continued to be strong sellers in May. But the gains in that segment weren't evenly distributed: Fiat Chrysler's Ram pickups posted a fat 17% gain, while sales of Ford's (NYSE: F) F-Series were actually down.

What's the deal?

Ford's sales are down, but for good reasons, the company saysThere are really three different stories here, one for each of the automakers.

Let's start with Ford. Ford's F-150 is the oldest of the three Detroit mainstays, going back to 2009. It's also the longtime market leader, and its market share has held steady until recently.

But right now, it has the lowest incentives of the three. That is costing it some sales: While individual pickup buyers tend to be fairly brand-loyal, commercial buyers are very sensitive to cost. That includes things like fuel economy, but it also includes the price up front.

All things being equal, most commercial truck fleet managers will buy the trucks that cost them the least. A few hundred bucks' worth of added incentives per truck can be enough to swing a sale.

Lately, Chrysler and GM have been willing to put up that money. But Ford has held back, keeping its incentives steady at about $4,000 per truck -- a few hundred bucks less than the other guys.

That's not because Ford wants its market share to change. It's because Ford's ability to make trucks is a little bit constrained this year.

Normally, Ford's two pickup factories make 60 trucks an hour, 22 hours a day, according to Ford Americas chief Joe Hinrichs. But this year, those factories are going to have significant downtime -- about 13 weeks each, Ford says.

Ford's all-new 2015 F-150 will feature aluminum body panels. Making them will require major changes to Ford's truck factories. Source: Ford Motor Company

Why? To switch over to Ford's all-new 2015 F-150. The new truck will have aluminum body panels, and assembling those new trucks will require special processes and equipment. Installing that equipment (and testing it, and training workers) will take a lot more time than the typical new-model changeover process.

Hinrichs said this week that Ford will lose over 90,000 units of production over the course of the year. That's about six weeks' worth of sales.

To keep dealers from running short, and to maximize the profits on the trucks it is selling, Ford is deliberately choosing to keep its incentives low -- even while knowing that decision will drive some price-conscious buyers to other brands.

GM's new trucks got off to a slow startMeanwhile, General Motors has been raising its incentives.

GM's pickups are all-new. The Chevrolet Silverado and GMC Sierra were launched last year as 2014 models. But sales were slow initially, because GM was being very stingy with incentives.

The new GMC Sierra is a much more profitable product than the truck it replaced, but sales were slow to get rolling. Source: General Motors Co.

GM's incentives on its old trucks were huge. GM sold a lot of pickups, but Ford was making a lot more money per truck. With a much-improved new model, GM felt that it could close that gap.

Drastically lowering its incentives boosted GM's profits per sale, but it cost GM in terms of total sales. That worked in GM's favor for a while, but at some point, the company decided to boost its incentives on certain models to keep pace with the market.

That helped: Sales have risen nicely over the last couple of months. But GM's pickups are still losing ground to Chrysler's Ram.

Chrysler's Ram has been taking advantageChrysler has been taking advantage of the other guys' issues, paying hearty incentives and posting big monthly sales gains. Its Ram 1500 has gained quite a bit of market share, especially at the lower end of the market.

A new diesel version of Chrysler's Ram 1500 pickup is giving the company some fuel-economy bragging points. Source: Fiat Chrysler

Chrysler isn't just doing that on price -- while its incentives were quite high earlier in the year, they have come down recently. The current Ram is a well-regarded truck, ranked highly by the likes of Consumer Reports. It boasts an EPA rating of 25 highway miles per gallon with its 3.6-liter V6 powertrain, something that appeals to those cost-conscious fleet managers.

Ram brand chief Reid BIgland likes to point out that the Ram's market share has gone from 11.1% at the end of 2009 to 21.7% at the end of the first quarter of 2014, a huge gain. As this slide from Bigland's presentation on Ram's five-year plan makes clear, a lot of that gain has been GM's loss:

Source: Fiat Chrysler

Bigland also said that the "conquest/defection ratio", a measure of whose trucks get traded in on whose, was about one to one between Ford and Ram last year -- but about 1.39 to one in Ram's favor versus the Chevy Silverado.

That's more about the improvements that Fiat Chrysler has been able to make to the Ram (and about GM's relative weakness) than it is about anything else. Once an also-ran, the Ram -- like a lot of other Chrysler products -- has become far more competitive after a series of well-thought-out tweaks and refreshes in recent years.

The upshot: The pecking order hasn't changed, but there's a lot going on Ford still leads this market by a solid margin -- the F-Series out-sold the GM twins by 3,546 trucks last month, or 5.4%, even though the Blue Oval lost ground.

Unless the all-new F-150 turns out to be a dud (not likely, says this Fool), Ford is all but certain to maintain its lead for the foreseeable future.

But unlike the new F-150, which is a major change, GM's new trucks were more of an evolutionary update -- and they failed to get the market excited.

That gave Chrysler an opportunity to pounce, with its much-improved truck. How will GM respond? And will Ford be able to keep pace -- or at least keep its profits up? Stay tuned.

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The only reason Ram is selling more trucks is because they're cheaper. Cheaper isn't better. I've owned a Ram1500 with the hemi and it didn't perform or get the gas the MPG that my Ford does. I get a better ride and haven't had any issues with my Ford150. Dodge will never catch the Ford150 in sales.